Citi’s Killer App Gives Hope to iPhone Sweatshops

May 15 (Bloomberg) -- The iPhone has become a symbol of
something Steve Jobs never envisioned: Chinese sweatshops.

Were the late Apple Inc. co-founder still with us, he would
surely dispute that. But facts are facts, and any of us (full
disclosure: this includes me) who use one of Apple’s
smartphones, iPads or iPods is, at least indirectly, supporting
the exploitation of electronics factory workers in China.

Yet what if the iPhone is a key to ending the poverty that
forces so many Asians to toil in such abhorrent conditions?

The buzz phrase “financial inclusion” is getting
increasing attention these days. It refers to the world’s
unbanked masses, what bankers like to call “the other 3
billion.” That’s the estimated number of people who lack access
to the most basic of financial services. And in nations such as
India and the Philippines, a key answer may be mobile phones.
Poor Asians who lack bank accounts often have one.

That has banks turning to experts on mobile-device
networking systems, such as Jay Collins. Working for Citigroup
Inc. in New York, Collins is one of modern finance’s true
alchemists, endeavoring to find ways for the poor to move, pay,
collect and store money on mobile devices.

No more wasting an entire day at the bank or paying various
bills in person. No more being scammed when remitting cash to
families overseas. No more getting robbed while carrying your
weekly wages. No more public officials skimming money off the
top. No more black-market money changers. No more turning to
loan sharks.

Cutting Out Middlemen

That also goes for small and midsize enterprises, which
account for almost half of all employment in developing Asia.
Owners and managers could make payments to suppliers and
employees directly into accounts connected to mobile-phone SIM
cards, eliminating any number of middlemen all looking for their
cut. The more cash and credit these businesses get their hands
on, the more Asians they can hire.

“We view this as our killer app that could transform
banking and reduce poverty and corruption at the same time,”
Collins says.

Citigroup isn’t an altruistic venture. It’s championing
this revolution because of the potential profits: loads of new
customers, deposits and, of course, fee income. Just as George
Soros’s Quantum (M) Ltd., Goldman Sachs Group Inc. and Nomura
Holdings Inc. invested in microfinance, Citigroup realizes
there’s money to be made even from those with little of it.

The potential of mobile banking deserves far more attention
than it’s getting from governments. It could enable billions to
leapfrog from no connection to the global financial system to
becoming productive participants. Asia’s poor would suddenly
have a way to manage income, build assets, invest in the future
and buy insurance to prepare for risks like health crises or
natural disasters.

Political leaders should facilitate the technology’s growth
with regulations and oversight to ensure security against
hacking and scams. They should commit to distribute certain
salaries, benefits and subsidies on mobile systems. They should
step up efforts to raise financial literacy in the region.

“The perfect-world, mobile-finance ecosystem would sound
like a symphony orchestra, where the various industry and
government participants show up at the same time, with the same
sheet of music, and play in harmony,” Collins says. “That is
not today’s reality. Currently, players appear at different
times and places with their own music and tempo.”

Big Benefits

There are big benefits here for governments. Phone
transactions create a cyber trail to give tax authorities and
national-security officials greater insights and influence over
the movement of money. It adds a level of transparency that
Asia’s current cash-based environment doesn’t.

India’s potential is a great example. Boston Consulting
Group reckons increased mobile finance would be a boon to
growth. In a 2011 report, it predicted a 5 percent jump in gross
domestic product, a $50 billion increase in tax revenue annually
and the creation of 600,000 new businesses by 2020. We’re not
talking sweatshop jobs, but decent-paying ones in air-conditioned buildings.

The Asian Development Bank’s experience in Afghanistan also
is instructive. Since the middle of the last decade, the Manila-based lender has made more than $100 million in loans to help
mobile-phone providers extend coverage to parts of the nation
with no telecommunications infrastructure. The financing also
supported the creation of mobile-phone banking services.

It had a couple of unanticipated consequences, both for the
better. First, fewer government soldiers were going AWOL. It was
feared that they were conspiring with local tribal leaders who
might be supporting terrorism. It turned out that they had been
disappearing to take their pay back to their home villages.
Second, soldiers suddenly were getting more money. Superiors
could no longer pocket big chunks of their wages.

Mobile phones are hardly a quick fix. The causes of
poverty, and the ways to address it, are as diverse as they are
complicated. For many, though, exclusion from the banking world
is a formidable barrier to better lives. Imagine the ripple
effects should mobile-phone consumer finance take hold.

Banks once gave out toasters to new customers. Free
iPhones, anyone?

(William Pesek is a Bloomberg View columnist. The opinions
expressed are his own.)

Read more opinion online from Bloomberg View.

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